Chapter 4 Managing logistics internationally

1. Chapter 4Managing logistics internationally

2. Enablers Activities • Commoditized transportation • Information and communication technology • Network design • Risk management • Governance Management of international logistics • Local responsiveness/Time to market • Inventory and handling costs • Transportation breakdowns • Geopolitical threats (war, terror) • Factor costs • Economies of scale Drivers Risks Framework

3. Drivers and logistics implications of internationalization The tendency towards internationalization The challenge of international logistics and location Organizing for international logistics Managing for risk readiness Content

4. What are the trade-offs between responsiveness to local markets and economies of scale? 1 Drivers and logistics implications of internationalization • Key issue

5. Drivers and logistics implications of internationalization • Increase Market Share • domestic market may lack the size to support efficient scale manufacturing facilities • Return on Investment • large investment projects may require global markets to justify the capital outlays • weak patent protection in some countries implies that firms should expand overseas rapidly in order to preempt imitators Motivations for International Expansion

6. Drivers and logistics implications of internationalization Motivations for International Expansion • Economies of Scale or Learning • expanding size or scope of markets helps to achieve economies of scale in manufacturing as well as marketing, R & D or distribution • can spread costs over a larger sales’ base • increase profit per unit • Location Advantages • low cost markets may aid in developing competitive advantage • may achieve better access to: • Raw materials • Lower cost labor • Key customers • Energy

7. High Global strategy Transnational strategy Multidomestic strategy Need for Global Integration Low Low High Need for Local Responsiveness Drivers and logistics implications of internationalization International Corporate-Level Strategy

8. Multidomestic strategy Drivers and logistics implications of internationalization • Strategy and operating decisions are decentralized to strategic business units (SBU) in each country • Products and services are tailored to local markets • Business units in one country are independent of each other • Assumes markets differ by country or regions • Focus on competition in each market • Prominent strategy among European firms due to broad variety of cultures and markets in Europe Logistical network: Mainly national; Sourcing, storage and shipping on a national level and duplicated by country

9. Global strategy Drivers and logistics implications of internationalization • Products are standardized across national markets • Decisions regarding business-level strategies are centralized in the home office • Strategic business units (SBU) are assumed to be interdependent • Emphasizes economies of scale • Often lacks responsiveness to local markets • Requires resource sharing and coordination across borders (which also makes it difficult to manage) Logistical network: Limited number of production locations that ship to markets around the globe through a highly internationalized network with limited localized warehouse and resources.

10. Transnational strategy Drivers and logistics implications of internationalization • Seeks to achieve both global efficiency and local responsiveness • Difficult to achieve because of simultaneous requirements • strong central control and coordination to achieve efficiency • decentralization to achieve local market responsiveness • Must pursue organizational learning to achieve competitive advantage Balanced local sourcing and shipping (e.g. for customized products and local specialties) and global sourcing and shipping (for example for commodities).

11. Suppliers Corporation Customers Domestic/Import Sourcing Inbound Materials Outbound Materials Throughflow Domestic/Export Distribution Order Processing Order Placement Order Processing Order Processing Transportation Transportation Supplier-Firm Interface Transportation Costumer-Firm Interface Physical Distribution Management Materials Management Transportation Customer Service Physical Distribution Management Inventory Management Inventory Management Inventory Management Storage Storage Storage Forward and Reverse Flow of Information, Products, and Funds Drivers and logistics implications of internationalization The International Supply Chain

12. Inventory Transport Handling Drivers and logistics implications of internationalization Internationalization

13. Scale economics Global consolidation Sourcing of commodity items from low-wage economies Concentration at specific sites Bulk transportation Drivers and logistics implications of internationalization

14. Risks in international logistics • External risks • Language and culture uncertainty • Political risks • Macroeconomic risks • Internal risks • Supply options • Inventory policy • Transportation and distribution arrangements Drivers and logistics implications of internationalization

15. Case study • The Deskjet-plus is one of several printers manufactured by the Vancouver Division of HP.

16. Stage 1: printed circuit board assembly and test (PCAT), performed at factory • Motors • Flex cables • Key pad board • Plastic mechanics • Plastic-skin • Carriage motor • Plastic-gears North America DC Vancouver plant • Application-specific integrated circuits • Read-only memory • Raw logic board Europe DC Logic board Asia Pacific DC Raw head driver board Head driver board Stage 2: final assembly and test (FAT), performed at factory shipment to different DCs Case study Factory-localization

17. Delivery of incoming materials (late shipments, wrong parts, and so forth) Delays in replenishing stocks at the DCs Internal process (process yields and machine downtimes) Inventory buildup or backorders at the DCs Demand Case study • Three major sources of uncertainty can affect HP’s supply chain:

18. Case study • Under ‘factory-localization’, HP ships different versions of the Deskjet-Plus to two non-US DCs by sea, with a transit time of about a month. • This long lead time limits DC’s ability to respond to fluctuations in the demand for different versions of the product. • To ensure prompt service for the customers, European and Far East DCs have to maintain high levels of safety stocks.

19. Drivers and logistics implications of internationalization The tendency towards internationalization The challenge of international logistics and location Organizing for international logistics Managing for risk readiness Content

20. How can we picture the trade-offs between costs, inventories and lead times in international logistics? 1 The tendency towards internationalization • Key issue

21. The tendency towards internationalization • Focused market Vs. focused factory

22. The tendency towards internationalization The advantages and disadvantages of focused factory

23. Distribution costs most important Inventory costs most important Shorter delivery time Lower demand volatility Local inventories Longer delivery time Greater demand volatility Centralized inventories The tendency towards internationalization • Centralized inventory

24. Slowest-moving lines, least predictable. Factory/Vendor C Inventory level Lead time Inventory of medium velocity, less predictable demand line. Regional distribution centers B Direct shipment of fast-moving, predictable lines. Local trans-shipment point A The tendency towards internationalization • Centralized inventory

25. manufacture and ship a generic Deskjet-plus printer without the power supply module and manual Factory localize the generic product to different specific options as needed DCs Case study Improving the forecast accuracy of product-mix demands is very difficult. 1 Improve process yields, and to reduce machine downtimes at the plant. DC-localization 2 3 Reduce shipment lead time between manufacturing and distribution, for example, shipping by air. Localization at DCs Quick shipment is costly.

26. Case study Localization materials Stage 1: printed circuit board assembly and test (PCAT), performed at factory • Motors • Flex cables • Key pad board • Plastic mechanics • Plastic-skin • Carriage motor • Plastic-gears US version • Application-specific integrated circuits • Read-only memory • Raw logic board • US version • European versions • Far East versions Logic board Unlocalized printer Raw head driver board Head driver board Localization materials Stage 2: final assembly and test (FAT), performed at factory performed either at factory or at DC

27. Case study Inventory levels at all sites of Deskjet-plus printer’s supply chain

28. Drivers and logistics implications of internationalization The tendency towards internationalization The challenge of international logistics and location Organizing for international logistics Managing for risk readiness Content

29. What are the risks in international logistics in terms of time and inventory? 1 How can the risks be addressed? 2 The challenge of international logistics and location • Key issues

30. The complexity of international logistics Multiple freight modes and cost options Extended lead time Extended and unreliable transit times Multiple consolidation and break points The challenge of international logistics and location

31. Inventory in supply chain=90 units 30 20 30 10 customer supplier Plant transit transit DC Inventory in supply chain=170 units 20 20 30 10 30 20 20 20 customer supplier Origin forwarder transit transit DC Destination forwarder Plant Transit Ocean transit The challenge of international logistics and location Domestic logistics International logistics

32. The challenge of international logistics and location Activity: Multiple freight modes and cost options

33. The challenge of international logistics and location Location analysis Phase Strategic decision to restructure and invest in plant network Project plan Specification of project plan Implementation of plan Geographical scope Selected location Continent (e.g. Asia, Europe) 3 to 4 countries Regions within selected countries Location within regions

34. The challenge of international logistics and location • Four-phase decision making process • Deciding upon the appropriate level of centralization-decentralization • Selecting relevant location criteria • The availability of physical infrastructure • The availability of warehouse sites • Central position in the regional market • Selecting criteria weightings • An economic trade-off analysis of structures and relevant locations

35. Drivers and logistics implications of internationalization The tendency towards internationalization The challenge of international logistics and location Organizing for international logistics Managing for risk readiness Content

36. How can supply chains be better organized to meet the challenges of international logistics? 1 Organizing for international logistics • Key issue

37. Organizing for international logistics Layering and tiering Evolving role of individual plants Reconfiguration processes Organizing for international logistics

38. Logistics postponement Organizing for international logistics • Postponed manufacturing • A specific combination of the three generic types of postponement (Bowersox and Closs,1996) • Form postponement: postponement of final manufacturing or processing activities • Time postponement: delaying of the forward movement of goods until customer or orders have been received • Place postponement: positioning of inventories upstream in centralized manufacturing or distribution operations to postpone the forward or downstream movement of goods

39. Product assembly and product improvement and recommendation Postponed manufacturing Activity at site Product customization Continental DC Changing role of DC National warehouse and deferred packaging Product packaging Factory warehouse Warehousing and shipment National warehouse Proximity to markets Access to production supplies Access to qualified suppliers Primary strategic contribution of the plant Organizing for international logistics Achieving worldwide learning capabilities Achieving global efficiency Achieving local responsive capabilities

40. Organizing for international logistics Reconfiguration processes for companies

41. Stages in the implementation of postponed manufacturing: local starting point

42. Stages in the implementation of postponed manufacturing: global starting point

43. Organizing for international logistics Supply chain reconfigurations involved in postponed manufacturing

44. Drivers and logistics implications of internationalization The tendency towards internationalization The challenge of international logistics and location Organizing for international logistics Managing for risk readiness Content

45. Managing for risk readiness • Short term risk readiness • Inventory policies to reflect volatility • Transportation network redesign • Reconsider sole and global sourcing arrangements • Long term risk readiness • Develop contingency plans and risk protocols • Audit preparedness • Train plant management and staff • Report to senior management on risk profiles and preparedness

46. Managing for risk readiness • DELL case: global sourcing and transportation post 9-11 • The events of 9-11 changed the dynamics of importing and exporting products into the USA • Air traffic control • post 9/11 customs and security requirements for global trade • Order increasing

47. Managing for risk readiness • Flexible Strategy • Flexibility to take advantages of different scenarios • Requires a flexible supply chain • multiple suppliers • flexible facilities • various distribution channels • Can be expensive to implement • coordination mechanisms • capital investments • loss of economies of scale

48. Managing for risk readiness • Implement Flexible Strategy • Production shifting: flexible factories and excess capacity and suppliers • Information sharing: anticipate market changes • Global coordination • Political leverage